Tax Court of Canada Judgments

Date: 19980409

Docket: 94-604-IT-G; 94-605-IT-G

BETWEEN:

LUCILLE B. CRIBB-McKEOWN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent,

AND

BETWEEN:

560233 ONTARIO LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Sarchuk, J.T.C.C.

[1] These are appeals by Lucille B. Cribb-McKeown (the Appellant) from assessments of tax with respect to her 1988, 1989, 1990 and 1991 taxation years and by 560233 Ontario Limited (560233) from an assessment of tax for its taxation year ending June 30, 1991. By consent of all parties, the appeals were heard together on common evidence.

[2] A number of issues were raised by the Appellant in her Notice of Appeal, all of which have been resolved, save one. The remaining issue flows from the assessment by the Minister of National Revenue (the Minister) of her 1990 taxation year which had the effect of adding to her income a shareholder benefit in the amount of $232,500 resulting from the transfer to her by 560233 of a residence described as 44 Elgin Avenue, Toronto, Ontario (the residence). The Minister also assessed 560233 by adding a capital gain in the amount of $232,500 to its Canadian investment income arising from the transfer of the residence. In both instances, the Minister proceeded on the assumption that the fair market value of the residence on October 12, 1990 was $657,500.

Evidence

[3] The following facts have been admitted by the parties:

1. Mrs. Cribb-McKeown purchased 44 Elgin Avenue (the “Residence”) on or about October 24, 1978.

2. Mrs. Cribb-McKeown purchased the Residence for the purpose of using it as the principal residence for herself and Mr. Cribb.

3. From 1978 to 1983, Mrs. Cribb-McKeown used the Residence as the principal residence of herself and Mr. Cribb.

4. From 1978 to 1983, Mr. and Mrs. Cribb-McKeown had exclusive use of the Residence.

5. 560233 Ontario Limited (“560233”) was incorporated on or about August 17, 1983.

6. Mr. Cribb and Mrs. Cribb-McKeown each owned 50% of the shares of 560233.

7. Mrs. Cribb-McKeown made shareholder’s advances to 560233 from time to time.

8. 560233 issued shares to Mrs. Cribb-McKeown in respect of the transfer of the Residence from Mrs. Cribb-McKeown to 560233 (that legal title to the Residence only was transferred is not admitted).

9. 560233 did not claim any capital cost allowance in respect of the Residence at any time.

10. After the Residence was transferred by Mrs. Cribb-McKeown to 560233 (that legal title to the Residence only was transferred is not admitted), Mrs. Cribb-McKeown continued to live at the Residence.

11. Mr. Cribb died on or about May 12, 1984.

12. On or about June 20, 1984, a writ was issued in the Supreme Court of Ontario by Midland Bank Canada against, inter alia, Mrs. Cribb-McKeown as the Executrix and Trustee under the last Will and Testament of Peter Cribb as action no. 19054/84 (the “Midland Bank Action”).

13. The Midland Bank Action involved a claim by Midland Bank against the estate of Mr. Cribb on an undertaking executed by Mr. Cribb on or about June 23, 1982 to pay to Midland Bank any amounts owing by Sheelan Investments Limited to Midland Bank at any time after June 30, 1982.

14. Midland Bank claimed that as of March 31, 1984, Sheelan Investments Limited was indebted to it in the amount of $4,994,262.07 and claimed payment of this amount from the estate of Mr. Cribb.

15. The Midland Bank Action was settled pursuant to Minutes of Settlement dated March 3, 1988.

16. The Minutes of Settlement provided that Mrs. Cribb-McKeown pay to Midland Bank the amount of $375,000, to be secured by a mortgage to be given by 560233 and registered against the Residence in the amount of $375,000.

It is also agreed that the residence was transferred back to Mrs. Cribb-McKeown by 560233 on or about October 12, 1990 and that at the time of this transfer, no attempt was made by 560233, Mrs. Cribb-McKeown or her advisors to determine its fair market value.

[4] The Residence: The property in issue, located in an area near the University of Toronto, was purchased by the Appellant in October 1978. Formerly a rooming house, it was renovated and converted by her husband, Peter G. Cribb (Cribb), into their personal home. The Appellant resided therein from August 1979 until its sale in 1990.

[5] The Transfer: Several years prior to his death, Cribb and a number of other investors formed a consortium to develop a shopping centre. Midland Bank Canada (Midland) was involved in financing the development. The project ran into financial difficulties and in June 1982, Cribb executed an undertaking in favour of Midland whereby he agreed to be responsible for and pay to Midland all amounts of principal and interest which remained owing or payable to it after June 30, 1982. On August 17, 1983, 560233 was incorporated. The Appellant and Cribb were the sole directors and officers as well as being the principal shareholders.[1] At the same time, Cribb established the Peter G. Cribb Family Trust, the trustees of which were the Appellant, Dennis Bodley and Susan Kelly. On August 25, 1983, the Appellant transferred the residence to 560233 and received as consideration therefor the amount of $435,000 satisfied by the issuance of a further 43,500 special shares.[2] Concurrently, 560233 agreed to purchase from G. Cribb Limited certain properties held in trust for it by the Appellant and Cribb. Both were directors, officers and shareholders of the vendor. The Appellant testified that these steps were taken as a result of the fact that Cribb was having difficulties with certain creditors, in particular, Midland, and was concerned that their assets were at risk of seizure. It was also her recollection that Cribb had received professional advice with respect to these transactions and that she “probably” had as well, but that the decision to go ahead was principally that of her husband.[3]

[6] The Law Suit and Settlement: Shortly following her husband’s death in 1984, Midland launched a suit against the Appellant in her capacity as Executrix and Trustee under the last Will and Testament of Peter Cribb, deceased, and against other members of the consortium. The Appellant testified that 560233 was not a party to the litigation and that the claim in the amount of approximately $5,000,000 being pursued by Midland was with respect to a personal debt of Cribb. A statement of defence and counter-claim was filed by the Appellant.[4] The litigation had dragged on for several years when the Appellant learned that another defendant was in the process of effecting a settlement with Midland. She was made aware that proceeding to trial would have been excessively expensive and as a result, dismissed her Counsel and personally began to negotiate a settlement. In due course, the Appellant agreed that the Estate would pay Midland the amount of $375,000. The settlement was effective as of March 3, 1988 with the amount to be paid on or before September 3, 1988.[5] To secure payment, the Appellant was required to direct 560233 to grant Midland a first charge on the residence.[6]

[7] In February 1988, as the settlement discussions were drawing to a close, the residence was listed for sale at a price of $825,000. No offers were received. In June of that year, it was listed as a rental property at $3,500 per month. Subsequently, the rental was reduced but there was no interest and the residence was taken off the market. The Appellant has no specific recollection of how Midland was ultimately paid but did indicate that in the period from 1985 to 1989, she had purchased some rental properties and that:

“I don’t remember ... when the buildings were sold because there was not just one building, there were a few buildings, and I got tired of getting up during the night to let people in without a key, and so I sold. So whatever the monies I had is probably what I used to pay, I don’t know”.[7]

[8] The Re-Transfer: In October 1990, the Appellant caused 560233 to transfer the residence to her for total consideration of $425,000.[8] She stated there were no further concerns that it was at risk of seizure by creditors. On the recommendation of her accountant, Bodley, she consulted a “tax expert”, Val Hack, with respect to the transfer and the proposed consideration therefor and was advised to go ahead.[9]

[9] Evidence was also adduced from Olga Scinocco, an insurance broker. She was an employee of Chris Steer Insurance Brokers (Steer) which business had provided insurance coverage with respect to all of the properties owned by the Appellant and 560233 for a number of years. Scinocco testified that from December 31, 1988 to December 31, 1990, the residence was covered with a homeowner’s insurance policy with the named insured being the Appellant, Erwin McKeown and 560233. Coverage included the residential dwelling including personal property and contents, third party liability and excess liability coverage. Effective December 31, 1990, a new policy was issued with respect to the residence with Zurich Insurance covering similar losses to those referred to in earlier years. The insured with respect to this policy was the Appellant alone. As well, Scinocco arranged what she described as commercial policies, three of which were assets of 560233 and the fourth, the registered owner of which was an unrelated third party, included loss payable to the Appellant.

[10] Vivi Roy, a real estate sales representative, testified that in 1988, the residence was listed for sale from February to July at a price of $825,000. The information reflected in the listing agreement was obtained from the Appellant and as a result of Roy’s inspection of the residence. Roy was also the listing agent with respect to the proposed rental of the residence and as before, the rental sought and other information was obtained by Roy from the Appellant and from her own inspection of the property. In both instances, the Appellant was listed as either vendor or lessor.

[11] The Bodley Videotape: In the course of this appeal, Counsel for the Appellant offered as evidence a statement made by Dennis W.A. Bodley (Bodley), recorded by videotape. Bodley was a chartered accountant and acted in that capacity for Cribb, 560233 and the Appellant. Following Cribb’s death in 1984, he continued to provide accounting, financial and income tax services to the Appellant and 560233 and, subsequent to the assessments, negotiated on their behalf with Revenue Canada. A voir dire was held to determine the admissibility of this statement. As part of the voir dire the Court viewed the videotape.[10]

[12] The circumstances leading to the videotaping of Bodley’s statement are as follows. This appeal was originally scheduled to proceed on June 24, 1996. On that day, I heard a motion by the Appellant for an Order adjourning the hearing on the ground that some five days earlier Bodley suffered a heart attack and was still hospitalized. The Appellant’s motion was granted. In addition, given Bodley’s condition and unfavourable prognosis, the Court, on consent of all parties, directed that the oral testimony of Bodley may be taken before the hearing of the appeal for the purpose of having his testimony available to be tendered as evidence. The Court further ordered that the evidence be recorded by a qualified Court reporter who will prepare a complete transcript of such evidence and by audio-video equipment which will permit the witness to be heard and seen simultaneously in the course of giving his testimony. Mr. Bodley died July 28, 1996 prior to the taking of his evidence pursuant to this Order. However, on June 22, 1996 Counsel for the Appellant attended at the hospital and recorded a question and answer session with Bodley concerning the matters in issue in this appeal.[11]

[13] The Bodley statement is being proffered as evidence as an exception to the rule against hearsay. The basic rule can be stated as follows:

“Written or oral statements, or communicative conduct made by persons otherwise than in testimony at the proceeding in which it is offered, are inadmissible if such statements or conduct are tendered either as proof of their truth or as proof of assertion implicit therein”.[12]

The statements made by Bodley are clearly hearsay as set out in the rule and thus, prima facie inadmissible.

[14] Necessity has given rise to a number of exceptions to the hearsay rule. The requirement that testimony be subjected to the test of cross-examination has been relaxed in situations where the declarant of the words in question is unavailable and the statement was made under circumstances which, it can be presumed, would impress the remarks with a genuinely trustworthy quality. In many situations such declarations are the only cogent evidence available and to exclude them would result in considerable inconvenience.[13] Exceptions to the hearsay rule therefore develop in situations where, as Sir Jessel M.R. stated in Sugden, the following four characteristics existed:

(1) It was impossible or difficult to secure other evidence.

(2) The author of the statement was not an interested party in the sense that the statement was not in his favour.

(3) The statement was made before the dispute in question arose.

(4) The author of the statement had a peculiar means of knowledge not possessed in ordinary cases.[14]

[15] In R. v. Khan[15] and R. v. Smith[16], the Supreme Court further defined the circumstances in which hearsay evidence may be admissible. Rather than attempting to fit hearsay into one of the common law exceptions which had developed over time and/or to continue to expand these exceptions, the Court adopted the dual test of necessity and reliability.[17] In its determination of the issue in Smith, Lamer C.J. said:

This Court’s decision in Khan, therefore, signalled an end to the old categorical approach to the admission of hearsay evidence. Hearsay evidence is now admissible on a principled basis, the governing principles being the reliability of the evidence, and its necessity. A few words about these criteria are in order.

According to Lamer C.J.:

The criterion of “reliability” - or, in Wigmore’s terminology, the circumstantial guarantee of trustworthiness - is a function of the circumstances under which the statement in question was made. If a statement sought to be adduced by way of hearsay evidence is made under circumstances which substantially negate the possibility that the declarant was untruthful or mistaken, the hearsay evidence may be said to be “reliable”, i.e. a circumstantial guarantee of trustworthiness is established. ...

Lamer C.J. then stated that:

The companion criterion of “necessity” refers to the necessity of the hearsay evidence to prove a fact in issue. ...

and stipulated that:

... the criterion of necessity must be given a flexible definition, capable of encompassing diverse situations. What these situations will have in common is that the relevant direct evidence is not, for a variety of reasons, available. Necessity of this nature may arise in a number of situations. Wigmore, while not attempting an exhaustive enumeration, suggested at 1421 the following categories:

(1) The person whose assertion is offered may now be dead, or out of the jurisdiction, or insane, or otherwise unavailable for the purpose of testing [by cross-examination]. This is the commoner and more palpable reason ....

(2) The assertion may be such that we cannot expect again or at this time, to get evidence of the same value from the same or other sources ... . The necessity is not so great; perhaps hardly a necessity, only an expediency or convenience, can be predicated, but the principle is the same.

Clearly the categories of necessity are not closed. In Khan, for instance, this Court recognized the necessity of receiving hearsay evidence of a child’s statements when the child was not herself a competent witness. We also suggested that such hearsay evidence might become necessary when the emotional trauma that would result to the child if forced to give viva voce testimony would be great. Whether a necessity of this kind arises, however, is a questions of law for determination by the trial judge. [18]

Lamer C.J. concluded that:

... Where the criteria of necessity and reliability are satisfied, the lack of testing by cross-examination goes to weight, not admissibility, and a properly cautioned jury should be able to evaluate the evidence on that basis.[19]

[16] With these principles in mind, I now turn to the statement itself. It is approximately one and three-quarter hours in length and contains a substantial amount of extraneous material not relevant to the matter before the Court. The balance of the statement lends itself to division into five somewhat overlapping sections. The first relates to Cribb’s financial affairs in the late 1970s and early 1980s, with emphasis on his involvement in the shopping centre project and the related financial problems. The second reflects the transfer of assets by the Appellant and Cribb to 560233. The third deals with the period of time following Cribb’s death and the various steps taken by the Appellant and her solicitors to resolve the Midland lawsuit. The fourth relates to the manner in which 560233 accounted for the residence in its books during the relevant periods of time and with respect to the re-transfer. Last, he speaks of his negotiations with Revenue Canada on behalf of the Appellant following the assessment.

[17] Counsel for the Appellants argued that the requisite element of necessity exists in that the declarant is no longer available to testify. That, however, does not end the matter since there remains the question whether evidence of the same or better value could not have been obtained from other sources.

[18] There is no dispute that Cribb was in financial difficulty as a result of his involvement in the project. The Appellant’s testimony and numerous documents amply establish that fact. Bodley’s reflections on the genesis of Cribb’s problems, the conduct of other investors and of the lending institutions (based in large measure on information provided by other individuals) while interesting, are generally inadmissible, have no more than marginal probative value and are, in my view, unnecessary.

[19] Cribb was concerned that assets were in jeopardy as a result of his financial difficulties. As was observed by the Appellant, this problem was under constant consideration and a lawyer, Arnold, was consulted. Bodley attended some of the meetings. He says that Arnold suggested the sale of all assets owned by the Appellant and Cribb to a newly incorporated company, as well as the concurrent establishment of a family trust. It is not possible to determine from his statements whether he was present when the recommendations were made and the decision taken or whether this information was passed on to him by Cribb. In his statement, Bodley also comments on the rationale for and the efficacy of the plan proposed by Counsel. It is not possible from Bodley’s statement to determine the basis for his opinions. There is no suggestion by the Appellant that she could not at this time expect to get testimony of the same (or better) value from other sources, in particular, from the solicitor, Arnold.

[20] The same issues arise with respect to Bodley’s statements regarding the resolution of the Midland law suit. First, the Appellant says that she personally conducted the final stages of the negotiations which led to a settlement. Second, the settlement documents indicate that both the Appellant and 560233 agreed to the terms following advice from their respective solicitors. Nothing before me suggests that Counsel who advised them are unavailable and that any evidence considered necessary for the purposes of these appeals could not have been obtained from these sources. Although Bodley says he attended some of the meetings with Midland Bank (a fact the Appellant does not confirm), his statement adds nothing to her testimony and to the settlement documents filed as exhibits.

[21] With respect to the re-transfer of the residence, advice with respect to income tax issues and the transfer value was obtained from Val Hack, the tax consultant. The Appellant testified that she relied completely on Hack’s advice, adding only that “Dennis (Bodley) didn’t say anything not to do it”. She further testified that with respect to the actual re-transfer, she attended at the offices of her solicitor, Clapp, but has no recollection of the nature of their discussions. There is no evidence before the Court to indicate that Hack and/or Clapp were not available to testify with respect to this issue.

[22] With respect to the foregoing, it might be, from the Appellant’s standpoint, expedient or convenient to have Bodley’s statement admitted into evidence but, in the present circumstances, that is not a valid basis. Other witnesses of potentially equal value appear to have been available and there is no evidence before me that there were problems in locating them or possible difficulties in making arrangements for their attendance.

[23] The second test, reliability, or the circumstantial guarantee of trustworthiness, requires careful consideration of the circumstances under which the statement in question was made. It is the Appellant’s responsibility to demonstrate that the hearsay statement is reliable or, as stated in Smith,[20] that it was made under circumstances which substantially negate the possibility that the declarant was untruthful or mistaken.

[24] In the present appeals, this requirement presents a particularly difficult problem. In the cases cited by Counsel and otherwise reviewed by this Court, the statements in issue were both spontaneous and contemporaneous with the event.[21] While no principle exists that failure to establish the contemporaneous nature of the statements automatically renders them inadmissible, one cannot ignore the fact that the events in issue occurred between 1982 and 1990. It is equally evident that the statement was not made before the dispute in question arose. Furthermore, the statement was not in any sense of the word spontaneous, having been made, for the most part, in response to specific and occasionally leading questions. I accept that the interview was conducted for the purpose of preparing Bodley to testify and thus, there was nothing inappropriate with respect to the manner in which it was conducted. However, that statement is now being proffered as evidence, thus on the issue of reliability the manner in which the responses were made must be taken into account.

[25] Is Bodley a disinterested party? In truth, he is not a party to the matters in dispute and the statement made was not specifically intended to improve his case. Nonetheless, he is far from a disinterested witness. At all relevant times, he was the accountant for the Appellant, Cribb and 560233. He asserts that he was involved in the decision-making process with respect to the incorporation of 560233 and the transfer of the various properties to it. He then made all of the entries in the company’s books he believed necessary to “protect assets from creditors”. He also conceded that the books contained errors with respect to matters relevant to the issue before the Court (the extent of which cannot be explored). In my view, he was a witness who is indirectly interested in the outcome of these proceedings, thus the danger of reconstruction is high and for obvious reasons, not challengable by cross-examination. Furthermore, in the course of his statement, he was patronizing in the extreme to the Appellant, implying that he had a major role in her decision-making beyond the mere giving of advice. He suggests that he took it upon himself to “guide” her in the conduct of her affairs after her husband’s death because in his view, “she was incapable of doing so herself”. Whether this was actually the case is not the issue. If Bodley believes that much of what occurred came about as a result of the advice he gave, there is a serious question whether his responses were coloured by a desire to justify that advice.

[26] Bodley prepared and filed the relevant income tax returns and, following assessments in issue, represented both Appellants and made submissions on their behalf to Revenue Canada. In the course of his statement, he demonstrated a degree of hostility to Revenue Canada (whether justified or not is quite irrelevant) to the point of implying that an auditor deliberately misplaced a document which Bodley says he provided with the result that key evidence for the Appellant was no longer available. I add only that the Appellant herself makes no reference to the existence of such a document and Arnold, who is said to have drafted it, did not testify.

[27] Further concern with respect to the reliability and trustworthiness of Bodley’s testimony is raised by his conduct. This arises from his wholehearted endorsement and participation in what may have been an illegal scheme, i.e. a series of fraudulent conveyances designed to put certain properties beyond the reach of creditors. Although no creditors suffered as a result and although it may well be argued that the questionable conveyances would not have precluded the creditors from reaching the properties in any event, that is not the point. If the purpose ascribed by Bodley to the transactions is true, it is evident that he was prepared to do whatever was necessary to achieve that end. If this involved maintaining “false” records to create the facade that these properties were the assets of 560233 and to have others act on such records (perhaps to their detriment) did not seem to trouble him.[22]

[28] It has been said that there is generally a presumption that a witness is telling the truth until the contrary is proved. However, in this case, Bodley has by his words and conduct, demonstrated a willingness to dissimulate in order to pull the wool over the eyes of creditors. While it may be argued that the concerns I have expressed should only go to the weight to be given to Bodley’s statements, their cumulative effect is such that I can only conclude that the Appellant has failed to establish a circumstantial guarantee of reliability and trustworthiness with respect thereto. Accordingly, the statement is not admissible.

Appellants’ Position

[29] The Appellants contend that the transfer of legal interest in any property without transferring beneficial ownership is not a disposition of property within the meaning of the Income Tax Act.[23] In this case, the Appellant says a resulting trust existed since there was a common intention between her and 560233 to create a trust in her favour. Accordingly, 560233 did not have a capital gain and the Appellant did not receive a shareholder benefit upon the transfer of legal title to the residence from 560233 to her nor did she receive a shareholder benefit arising from her living in the residence.

[30] Counsel for the Appellants put forward several propositions in support thereof. First, that a resulting trust is based on the presumption that he who supplied the purchase money meant the purchase to be for his own benefit, rather than for that of another, and that the conveyance in the name of the latter is no more than a matter of convenience and arrangement between the parties for other purposes.[24] Counsel contends that in the present appeals, the evidence establishes that the Appellant purchased the residence and that the conveyance to 560233 was an arrangement for other collateral purposes, i.e. the protection of assets from creditors. Second, the existence of a resulting trust is supported by the fact that the Appellant intended to retain beneficial ownership in order to maintain her entitlement to the principal residence exemption upon its ultimate disposition. Last, Counsel argued that in the absence of a written trust agreement, a resulting trust may be established by parol despite the Statute of Frauds.[25]

[31] In Pettkus v. Becker,[26] Dickson J. (as he then was) observed that:

“... the resulting trust is not available, as Professor Waters points out, (at p. 374): ‘where the imputation of intention is impossible or unreasonable’ ... “

On the evidence before me, it is neither possible nor reasonable to conclude that a resulting trust existed.

[32] To accept the Appellants’ proposition, it is necessary to find that both 560233 and the Appellant were of one mind with respect to the existence of a trust. That proposition rests principally on the testimony of the Appellant herself. She said that in 1984, when the transfer occurred, the arrangements were made by her husband with the advice and assistance of Counsel, Arnold. Although kept informed and having executed all of the required documents, she professes to have only a general understanding as to the purpose underlying the transactions. On the other hand, she maintains that both she and 560233 intended that, notwithstanding the documents, only legal title would pass. This testimony must also be considered in light of the fact that the disposition formed but one part of a “package” which included the incorporation of 560233 and the establishment of a family trust.

[33] With respect to the submission that the most relevant conduct of the parties relates to the financial arrangements in the acquisition of the property, it must be observed that the acquisition and disposition are well separated in time, some six years in fact. Thus, the conduct which most appropriately should be scrutinized relates to the arrangements for the disposition of the residence. The conveyance of the residence to 560233 was for good and valuable consideration, a factor totally inconsistent with the proposition advanced by the Appellants.

[34] It is indisputable that at all relevant times, the corporate records listed the residence (along with all of the other properties transferred to it at that time) as assets of 560233, and that in all subsequent years until 1990, it was treated as such for all purposes, another fact clearly inconsistent with a common intention to create a trust. It was suggested in argument that such treatment was merely a necessary facade since 560233 had to appear to own these properties in order to protect assets from creditors. Thus, the form of the transfer and the consideration paid should be ignored as irrelevant. This proposition, however, is not consistent with the Appellant’s testimony to the effect that this was her asset and the debts were solely those of Cribb. She was not sued by Midland in her personal capacity and there is no evidence to demonstrate that any property she owned in her own right was at risk.

[35] There is no acceptable evidentiary support for the proposition that at the time of the disposition, the Appellant intended to retain beneficial ownership in order to maintain an entitlement to a principal residence exemption. In my view, counsel’s submission that ab initio such an underlying motive existed is questionable.

[36] Last, it cannot be said that she is a disinterested witness, that is one who has no interest in relation to the matter in question. Hers was the only parol evidence adduced in support of the position advanced. As contrasted to the Chrustie case,[27] the failure to call the solicitor who advised Cribb and “probably” the Appellant with respect to the transfer, the incorporation of 560233 and the Cribb Family Trust is a relevant factor. Who better to provide disinterested testimony with respect to the nature and purpose of the transactions? As was observed in Bouchard v. The Queen:[28]

“The document was prepared by a reputable firm of solicitors. It would be contrary to the standards and integrity of a member of the profession to misstate a material fact for an ulterior or dishonest purpose.” ...

[37] The Appellant’s claim that 560233 acquired the residence as a trustee is not supported by probability nor are the facts relied upon indisputable. As was observed by Dickson J. (as he then was):

“... The sought-for “common intention” is rarely, if ever, express; the courts must glean ‘phantom intent’ from the conduct of the parties.”...[29]

There is far too much ambiguity in the evidence adduced on behalf of the Appellants to “glean” such an intention in this case.

Alternative Submissions

[38] Having concluded that there was no resulting trust, it is now necessary to turn to several alternative arguments submitted on behalf of the Appellant.

[39] First, it was submitted that if a shareholder benefit is to be included in computing the Appellant’s income under subsection 15(1) of the Act, the benefit must have been conferred with her knowledge or consent or in circumstances where it is reasonable to conclude that the Appellant ought to have known the benefit was conferred. Thus, in cases where a shareholder does not intend to have any property or benefit conferred on herself and is an unwilling and uninformed beneficiary, she has not received a shareholder benefit.[30] The Appellant alleges that although she was the directing mind of 560233, she clearly had no intention to confer a benefit on herself. If her professional advisors were wrong regarding the existence of a trust and were wrong with respect to the accounting treatment used, it was a mistake made in good faith but on a faulty premise. Counsel argued that the wording of subsection 15(1) of the Act refers to some form of action with a strong component of intent and should not embrace an event that is the result of mutual mistake between the parties, in this case, the Appellant and 560233 when the mistake was the result of an act or omission of a third party operating in good faith but on a faulty premise.[31]

[40] In Chopp, the Appellant was the major shareholder in the company. He and his wife purchased a new house and while on vacation, the corporation advanced a substantial amount to his lawyer as part of the cash required to complete the purchase of the home. When recording the advance of the funds, an employee of the corporation erroneously posted the advance as a debit to the general expense account “legal corporate”, when it should have been a debit to the shareholder’s loan account. At all relevant times, that shareholder’s account had a credit balance of not less than $150,000, well in excess of the amount in issue. When the corporate financial statements and income tax returns for 1989 were prepared and filed, neither the Appellant nor the corporate bookkeeper nor the accountant discovered the error. On these facts and Chopp’s testimony that he had intended to use his shareholder’s loan account to make up any shortfall in the purchase of his home, the Court found that no benefit had been conferred.

[41] The Appellants argue that a similar situation exists in this case in that there was no intention to appropriate funds from the corporation and there was no intention to defraud. What existed was nothing more than an honest mistake made by the professional advisors regarding the existence of a trust.

[42] In my view, the decisions in Chopp, Robinson and Simons are distinguishable on their facts. There was no inadvertent accounting error in the present appeal nor was the “appropriation” the result of a mutual mistake between parties acting in good faith as was the case in Robinson. The actions of the accountant, Bodley, were not based on error and were approved by the Appellant. One cannot ignore that the corporate records, financial statements, income tax returns, etc. from 1983 to 1990 reflect exactly what was intended, i.e. the ownership of all of the properties including the residence. Furthermore, with respect to the actual benefit, the valuation placed on the residence in 1990 followed consultation with a “tax expert”, Hack, and a meeting with her own solicitor.[32] Her inability to recall the details of their discussions and the advice given does not alter that fact. As Bonner T.C.C.J. observed in Stafford v. The Queen[33]

“... Persons who seek to achieve a certain result and who, for that reason, arrange their legal relationships in a certain way bear a considerable burden when they assert that the relationships are to be ignored for other purposes. It is not enough to say ‘I was only fooling’”.

This comment is most apt in the present circumstances..

[43] As further alternatives, Counsel submitted that in the event this Court finds that there was no trust:

(a) an adjustment in favour of the Appellant should be permitted with respect to the transfer value of the residence to reflect its fair market value and further that a corresponding adjustment be made to the 560233 shareholder’s advances account;

or

(b) that the fair market value of the residence and the value of the redeemable shares as of October 1990 is a taxable dividend and not a shareholder benefit because the transfer of the residence formed part of the consideration for the redemption of the Appellant’s redeemable shares in 560233. Therefore, tax should be payable by the Appellant only to the extent to which the value of the residence exceeded the paid-up capital of the shares redeemed. Counsel further argues that the excess amount should be considered a deemed dividend distributed by the company to the Appellant.

[44] The relief sought is not within the scope of this Court’s jurisdiction. The sole issue before me is whether there was an appropriation by the shareholder and whether the benefit resulting therefrom was properly included by the Minister in computing the Appellant’s income under subsection 15(1) of the Act. With respect to 560233, the issue is whether the Minister erred in adding a capital gain to its Canadian investment income arising from the transfer of the residence. What the Appellant is seeking is tantamount to a declaratory Order instructing the Minister to reassess on a completely different basis, not previously advanced, and which has not been considered by the Minister. I do not believe this Court has authority to do so.

[45] The last alternative submission made on behalf of the Appellant is that in the event the Court finds there was no trust, the amount of the rental benefit assessed to the Appellant is excessive. The Minister assumed that the monthly market rental of the residence in 1988, 1989 and 1990 was $2,500, $2,615 and $2,735, respectively. The evidence before the Court, Counsel for the Appellant argued, was that when attempts were made to lease the property in 1988, no interest was shown even when the rental was reduced to $2,200. Accordingly, given the prevailing market conditions as well as the nature of the residence, any rental benefit to be assessed against the Appellant for the use thereof should not exceed $2,200 per month.

Conclusion

[46] As previously noted, certain issues have been resolved as follows:

(a) The Appellants, Cribb and 560233, both took the position that the fair market value of the residence on or about October 12, 1990 was substantially less than the amount of $657,500 assumed by the Minister in making his assessment.

The Appellants have abandoned their challenge of the Minister’s valuation.

(b) The Appellant, Cribb, reported a taxable capital gain in 1991 of $150,000 arising from the disposition of 250 common shares in the capital of 491323 Ontario Limited and claimed a $150,000 capital gains deduction in her income tax return. The Minister disallowed the deduction claimed.

The Appellant has abandoned this claim.

(c) Two separate issues arise out of the acquisition of the Hamilton Heights Golf Club in 1988 by the Appellant, Cribb, and her husband, Erwin Henry McKeown.

(i) The first issue is whether certain business losses relating to the operation of the golf club in the amount of $36,970 in taxation year 1988 are deductible.

The Appellant has abandoned her appeal with respect to this issue.

(ii) The second issue is whether the Appellant, Cribb, was entitled to claim certain deductions for interest paid in taxation years 1988 to 1991.

The parties agree that the Appellant is entitled to claim deductions for interest paid in the following amounts:

1988 - $2,944;

1989 - $6,226;

1990 - $5,820;

1991 - $5,383.

(d) The rental benefit to be assessed to the Appellant in taxation years 1988, 1989 and 1990 is $2,200 per month.

[47] The appeals of Lucille B. Cribb-McKeown are allowed to the above extent only and she is not entitled to any further relief. The appeal of 560233 is dismissed. In these appeals, there shall be one set of costs to the Respondent, to be taxed.

Signed at Ottawa, Canada, this 9th day of April, 1998.

"A.A. Sarchuk"

J.T.C.C.

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